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Smaller investors go it alone as banks axe financial advisers

Smaller investors have been left with no one to advise them where they should invest their stocks and shares Isa allowance this year.

People who need help deciding the best place to invest their money may be forced to adopt a do-it-yourself approach – and new websites are springing up to help them.

Regulations introduced at the beginning of this year make it obligatory for financial advisers to charge investors a fee. This has led most banks and financial advisers to stop offering help to smaller investors who can't afford, or won't be willing to pay, the going rate for their services. Previously the commission they received from product providers helped to subsidise the cost of dealing with smaller investors. All the high street banks have now stopped providing advice to small investors.

A Bank of Scotland spokesman explains: "We conducted research among our customers and found that people with less than £100,000 were less willing to pay for advice, so now we only advise people with £100,000 or more of investable assets."

Even if smaller investors were prepared to pay, the bank doesn't have suitably qualified advisers in its branches any more.

Not getting investment advice from your bank may be no bad thing. One in four customers received poor advice from their bank or building society, according to a "mystery shopping" exercise carried out last year by the financial services regulator.

Following this exercise, Santander announced it was also withdrawing its advice service for smaller investors.

Nationwide Building Society is the only organisation left on the high street which is still advising investors of any size. It does not charge until an investor decides to go ahead with its recommendations. Guy Simmonds, head of product at Nationwide, explains: "Being a mutual we came from a different starting point to the banks. We believe everyone should have access to advice and our customers told us they would be prepared to pay for it."

However, providing comprehensive advice is a lengthy process and Simmonds says it normally involves a two-hour fact finding interview and a two- hour presentation of the results. The society's tariff of charges is explained to investors several times during this process.

The alternative for investors is to make their own decisions. Fidelity Worldwide Investment is the latest to launch a service which it is promoting with a major advertising campaign. It is also offering a "half-price Isa" whereby it will reduce the annual management charge on funds in an Isa over the next 12 months, from 1.5% to 0.75%.

Fidelity's service is mainly internet-based, but investors can also call up and talk to someone if they prefer. They can choose from a range of "risk rated" funds-of-funds, or six "model" portfolios of funds designed to meet different objectives. Alternatively, investors can make their own choice of funds from a "select list" chosen by Fidelity or from the market place.

Fidelity is not the only organisation trying to attract self-directed investors. Hargreaves Lansdown has for many years offered its Vantage service to investors who want to make their own investment decisions. Alliance Trust Savings offers the i.nvest trading platform through which investors can buy investment trusts as well as funds.

More recently launched services include the Axa Self Investor site, which offers a range of funds of funds and a short-list of fund "favourites", and Charles Stanley Direct, which has ambitions to be "at the forefront of the direct-to-client investment market".

Besides selected funds, and "foundation" portfolios, stockbroker Charles Stanley will also allow investors to buy shares, investment trusts and ETFs (exchange traded funds).

Investors using these services need to bear in mind that they will be considered responsible for their investment decisions.

If they make a mistake and choose a poor fund which loses them money, they won't be able to complain about poor advice or mis-selling, or claim compensation.

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